Information technology (IT) is a core part of the financial services industry in the United States, Europe and beyond, and this has become more so with the pandemic. When it first came about, many businesses shifted to working from home due to social distancing measures, putting pressure on the financial services industry to offer digital alternatives to many in-person processes.
While the pandemic has presented many challenges, it has also provided a much-needed push to the industry to explore the potential of emerging technologies further and tap into digital transformation. There are many benefits to be attained to improve the quality of the customer experience, reduce staffing costs, increase profits, and improve the efficiency of financial markets.
Fintech is a term used to refer to technology innovation in the financial services sector. Global financial central banks must lead the way in discussions around the nature of money in a digital world. Traditional paper processes within the financial system were already being cut back before the pandemic but today, to remain competitive and to meet increasing customer expectations, the financial services industry has had to improve its productivity. This is where technology can greatly assist. Below are some of the trends we are seeing in financial services.
Artificial intelligence (AI) and Automation
AI and chatbots are growing at an exponential rate in the financial services sector. Artificial technology is where machines undertake tasks that a human would usually do. AI can also be coupled with other technology for better outcomes. This includes:
In wealth management and private equity firms, machine-learning technology is used for robo advisors. These robo advisers automatically invest for clients by studying trends to provide faster investment.
Drawing on vast pools of data, AI is used in credit card decision making to make quick and accurate decisions. By studying the patterns of customers and flagging anything unusual, AI is used in fraud prevention.
These emerging technologies have huge potential to reduce costs and enhance customer experience, leading to overall growth. However, AI is relatively unexplored in the financial services sector. There are many processes that humans do that could be done by AI. Robotic Process Automation, sold by technology companies like IBM, could be used to take on time-consuming tasks using AI and software robots, for example.
There are barriers that limit the sector from achieving its full potential when it comes to AI. These include management being risk averse, not only when it comes to ethical, security and data privacy implications, but because AI requires a large investment, with cost-saving benefits only to be seen well into the future. Data in banks is generally spread across many different infrastructures which also makes AI more challenging to implement.
Cloud technology in financial services
Due to the pandemic, cloud technology has become the backbone of many businesses in order to support a more flexible workforce that needs the option of working from home. Customer expectations have changed. There are more demands being placed on businesses to offer digital solutions that take into account pandemic movement restrictions. Customers still expect efficient financial processes that are fast, despite the pandemic. These demands have put more pressure on the financial services industry to work with and embrace cloud technologies.
The financial services sector was already using cloud technology for administrative tasks. Now we are seeing the cloud used for core services such as payment transactions, credit risk management, credit scores and customer due diligence. The scalability of cloud technology means financial services firms can take advantage of the shortened time-to-market of new services with minimal outlay. Cloud technology provides strong real time analytics and assessment of business processes so the sector can identify areas of strength and weakness to aid in decision making.
The highly sensitive nature of financial services data does mean though that the industry has to work closely with cloud security experts to address security, compliance and governance requirements. There are hybrid cloud options being adopted that give consumers both the privacy and the accessibility that comes with cloud technology.
Better customer service through smart analytics
Following on from the wins to be gained in cloud technology, one of them being real-time data, many industries such as pharmaceuticals have tapped into smart analytics which has contributed to major growth. Smart analytics helps businesses better understand their customers’ needs and wants to create an enhanced customer experience by offering products and services based on data mined.
The financial services sector, however, has not reached its full potential when it comes to smart analytics and interfacing with third-party vendors. Analytics is still yet to be embedded in banking services and processes, culture and decision making, because data is tied up in regulation. To bridge this gap between business and technology, more investment is needed in analytical roles.
Blockchain technology services is an emerging technology that is rapidly changing the financial services industry and is behind the digital currency, Bitcoin. Blockchain technology works using a large, distributed ledger that is publicly visible and allows for the secure and fast exchange of money. Data is decentralised because it sits within the different organisations in the blockchain. This puts the transaction taking place at less risk of a cyber-attack. Blockchain is becoming critical in providing faster settlements in banking because transactions are verified by each participant in the blockchain before becoming part of the chain.
Today, however, blockchain has a low uptake rate. One of the main roadblocks is it requires multiple organisations to be onboard with the technology and this isn’t easy to accomplish, especially when banking regulations come into play. In the future, it is believed that blockchain will be central for processes such as fraud detection and loan processing.
New online digital experiences for customers
Offering digital experiences to customers online attracts customers. We have seen this in retail banking, with insurance companies, wealth management, capital markets and commercial banking.
API platforms give customers the freedom to do what they want with their data, for example, integrating their banking data into other apps. In the past, many financial institutions preferred to steer away from API, which is software that allows two applications to communicate with each other. Regulation in the EU is now forcing organisations to offer open API. Consumers can benefit from open banking by sharing their data with third-party budgeting apps for example, or by using money management tools. This allows small financial organisations that cannot afford these amenities to offer them through third parties.
Cyber security considerations
The pandemic has increased the threat of malicious actors and the financial services industry is extremely vulnerable to this due to the sensitive nature of the data it keeps. A data breach for any businesses in the industry would come at a huge cost to business brand and consumer confidence. The industry must work closely with experienced cyber security experts to develop strategies to enhance compliance and implement cyber-attack counter measures.
Embracing technology is great, but a balance must be struck between investing in it and keeping data secure. This is why risk management is so important.
The acceleration of technology has provided many opportunities for financial services businesses. Talk to the experts at NetworkIQ to find out how your business can benefit from these exciting changes while also keeping data secure.